According to a study conducted by the University of Florida, employee theft, shoplifting, vendor fraud and administrative error cost retailers $31 billion in 2004. That is 1.54% of total annual retail sales. Studies show that anywhere between 44 – 48% of these losses are from internal theft. Ouch. If you own or manage a store, someone either has stolen from you before or someone will, and it will likely happen again. It’s a harsh reality, isn’t it?

How does one manage this reality without creating a workplace that is full of distrust and suspicion? Here some tips:

Accept the facts. I have met store owners and managers who refused to accept the reality of internal theft and as result had employees stealing them blind. In the early days of the Bose stores I was helping open a store and told the manager that many of her store practices were putting them at high-risk for internal theft. The manager was highly offended by my “accusations”. She informed me that internal theft might happen in the big cities like I was from but she knew her people were good people from good communities. Three months later we took an employee out of the store in handcuffs after discovering huge product shortages. Internal theft happens in chains and single stores, urban stores and country stores. I can promise you one thing: your store is not immune.

Know that your role as a manager, owner, or executive is to keep honest people honest. The overwhelming majority of your employees are honest people who do not steal. Do your part to keep them that way. Loss prevention experts tell us that three major conditions need to exist for someone to steal. They are motive, opportunity and lack of risk. Motives can include the employee being heavily in debt, seeing the company as an entity that isn’t hurt by the loss, or disgruntled from the lack of a raise or other wrong, real or perceived. Opportunity is the ease by which theft can occur. The lack of risk is whether they think they will get caught or not and the consequences that will follow if they are caught. Your role in keeping honest people honest is to manage those three conditions.

Motive is the hardest for you to manage or control. Whenever I had a store with a shrinkage problem and I suspected someone specific, I was wrong as often as I was right. The internal thief is usually smart enough to not announce their problems or the fact of their disgruntlement. The best way to manage this element is to respect and appreciate your employees to the best of your ability.

Reducing the opportunity to steal saves money and careers. Unfortunately, part of a long career in retail management means having quite a few experiences dealing with employees who are caught stealing. I’ll never forget talking with a part- time college student whom we had just caught stealing a substantial amount of product. Here was a young man with so much of his life to look forward to, sitting in my office waiting for the police to arrive and arrest him for grand theft. I was so disappointed in him and while I felt bad for him, I knew that the consequences he was about to face were the result of his own actions. I asked him why he did it. He was from a fairly affluent family, he didn’t need the money, he was about to graduate from college and now he was going to have a police record. I will never forget what he said. He looked at me with sad eyes and said, “Because I could.”

By no means would I take responsibility for someone else’s actions, but I realized then that perhaps if I had reduced the opportunity to steal, that young man might not have been tempted to try. It was then that I started managing by keeping honest people honest. By reducing the opportunities that people have to steal, you help quiet those voices inside that tell us “everyone does it” or “nobody will know” or “they owe me.” We’re all human and those temptations do arise.

 There are probably more ways to steal than to remain honest. One of my favorite stories comes from my colleague Pat, who once interviewed a guy who is an expert on how bartenders steal from restaurants. The guy told the story of a restaurant owner who knew that a bartender was stealing, but couldn't figure out how he was doing it. He called in a consultant who watched and watched and watched but he couldn't figure it out, either. He finally said to the owner, "I watched all three cash registers all night long" and didn’t see anything. The owner said, "THREE cash registers?? We only have two!" The thief had actually brought in an extra cash register to steal. Now that is a creative thief.

For specialty retailers, here are the top four ways out of many to reduce internal theft opportunities:

1. Keep the backdoor closed and armed if it has an alarm on it. One of the easiest ways to steal is for an employee to set some products outside the backdoor and either pick it up later or arrange to have a friend make the pickup. It only takes a few seconds to open and close the back door. By the way, sharing the alarm code or key with all the employees pretty much defeats the purpose of the alarm.

2. Have a member of management inspect the garbage before it is taken out. While many employees and managers think of this as too “big brother” like, it’s one of the most common ways employees steal. One way to reduce the stigma of this is requiring that everyone must have someone else inspect the garbage, including the store manager. Ask employees to break down boxes inside before taking them out to the dumpster or compacter. Use clear garbage bags to ensure products aren’t going out with the garbage.

3. Review the register transactions and security videos on a regular basis, and make sure the staff knows you do so. As a district manager I always expected my store managers to review the previous day’s transactions, especially after they’d had a day or two off. This made sure they knew what was being sold in their absences as well as allowing them to spot any transactions or ringing patterns that were out of the norm. One day while visiting a store I found the manager doing this in the office with the door closed. Unfortunately, by closing the door he was missing the whole point of the exercise. I want employees to see me review this material. I want them to know that they are checked on a regular basis. As a matter of fact I used to do it at the front counter when business was slow. While reviewing the sales I might compliment an employee for their add-ons or on a particularly large transaction. I might see a return and ask the employee why the customer brought it back. I also would look for excessive opening of the drawer or a small cash refund without a receipt. I’d much rather do this that put a policy in place that only management can do refunds.

4. Control access to your customer data, especially credit card numbers. One of the big issues facing retailers today is that employees have been known to steal a customer’s credit card number and other personal data. It isn’t unusual to hear about an employee who steals a customer’s credit card number and uses it to make purchases online. Avoid this issue by only allowing managers to have computer or physical access to reports and credit card slips. Obviously your employees will have access to the information during the sale but most data theft happens post sale.

Reducing the opportunity to steal will not only keep honest people honest, but will also make it that much more difficult for the dishonest employee to succeed. Luckily, the more a dishonest employee succeeds the greedier he gets. Reducing opportunities will force the thieves to take greater risks and increase the likelihood that they will trip up and get caught.

Knowing the consequences of getting caught keeps most honest people honest. When I was working for a retailer years ago a store manager was caught stealing a large amount of product. Let’s call him Mark. Mark was a very well-respected and well-liked manager. Since the district manager’s office was in his store, Mark was often the point person if the DM was traveling or on vacation. It seemed that Mark had a lot of skills that served him well. One year, after Mark’s store had a particularly poor inventory, the DM and loss prevention started an investigation. It was soon discovered that Mark had stolen an extremely significant amount of product over quite a few years but up until then he had covered his tracks well.

Mark’s day of reckoning came. When someone steals long enough and stays in their job long enough their day of reckoning usually does come. Mark was arrested and taken out of the store in handcuffs in full view of his staff. Company representatives and the police then went to his home and confiscated the stolen products. The stolen products included jewelry he had given his wife, toys he had given his son, clothing he had worn, and other items used in the home. All taken out in front of his family. As you can imagine, Mark was devastated.

The smartest thing that retailer did was not hide the fact that this manager stole them blind. Many retailers try to sweep it under the rug out of embarrassment or to protect the ex-employee. This company did the smart thing. They told everyone in the company about it. Naturally, they focused on the fact that Mark was arrested and taken out in handcuffs in front of his employees. They focused on the pain and embarrassment Mark’s action brought upon his family. How much do you want to bet that if any other manager had been stealing up to that point that they stopped after Mark was arrested?

For years I shared the story of Mark with every new employee. Hundreds of new hires at Bose heard Mark’s story even though it didn’t happen there. I wanted those new employees to understand the consequences of stealing. I didn’t focus on the getting arrested part. I focused on the shame and remorse that Mark must have felt that day. I focused on how humiliating it must have been for his family to lose gifts that he had given them. I felt badly for Mark’s family but I made sure that everyone knew the consequences of Mark’s actions and that they would face the same consequences if they chose to steal.

I know many retailers are uncomfortable prosecuting their employees who are caught stealing. Criminal prosecution can also cause challenges for the local management including having to appear in court. Clearly, it’s not an easy decision but it is by far the greatest deterrent to internal theft. Being terminated and being ineligible for rehire is certainly a consequence of your actions but not to the same degree as a criminal record. Obviously you or your company have to do what you think is right. Regardless of the consequence, it is important that employees know that your company does take action against employees who steal or embezzle. Again, it will help keep honest people honest and may also reduce the amount stolen by the dishonest employee.

Internal theft is probably unavoidable, but it is manageable. Through good hiring and business practices a retailer can keep losses to a minimum. When a manager or retailer doesn’t engage in those practices they risk losing their job or even their business. Even worse, it casts a shadow on all of the honest and hard-working employees in the store. And that’s an avoidable consequence of management not doing their job. So take the actions you need to take, and never miss the chance to tell the story of Mark, who lost so much by not remaining honest.

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Here is some of the best advice I ever received as a store manager:

People don’t have to like you but they do have to want to work for you. If you really want to be successful, you want your staff to love working for you. For a manager, being respected and appreciated if far more important than being liked. I’ve met many store managers who were liked by their staff but not respected or appreciated. Conversely, it’s rare to meet a store manager who is respected and appreciated and not also liked by his/her staff. What’s the difference? The manager who needs to be liked is self-centered. The manager who wants the staff to love their jobs and be successful is humble. The only time this is not true is when the store is a disaster and the manager is brought in to clean house.

Whenever you come out on to the floor and the store is busy do not approach staff members and ask if the customers have been helped. Even worse is when a staff member is not with a customer and you go up and ask a customer if you can help them. Although your intentions are right, your actions communicate to the staff that they aren’t running the floor properly when you’re not there. The best thing you can do when you come out onto the floor is to ask a staff member who you can help. A colleague once told me that the most obnoxious thing a store manager can do is to walk out onto the floor and just take charge. I think I’ve done a few things even more obnoxious than that, but I do agree with her.

Praise and coach in public, reprimand in private. I used to say praise in public and coach in private but I’ve come to realize that coaching in public is a good thing. I didn’t always understand the difference between reprimanding and coaching. According to my dictionary, to reprimand is “to voice or convey disapproval” while to coach means “to instruct and train.” I once had an employee who thought that to improve a process or a tool you had to tear it down first. Unfortunately, there are many people who manage that way.

Ask your staff for honest feedback. For years I wasn’t secure enough as a store manager to ask my staff for feedback to help me improve and develop as a manager. I was the boss of the store and no one was going to coach me! Until the day my assistant said, “Chief, we need to talk. (She liked to call me Chief. It’s not like I had a need to be called Chief.) The way that you were kidding around with Cheryl wasn’t good. It made her feel bad and she was almost in tears.” Of course I felt horrible. “I’ll apologize right away. I was just kidding and didn’t know it could hurt someone,” I said. Then my assistant said, “Well Chief, it wasn’t the first time.” Now I really felt terrible. I asked her, “Why didn’t you say something before?” She replied, “You didn’t ask and didn’t actually act like you wanted to hear feedback like that from me.” From that moment on, I knew that if I wanted to be a better manager I needed to get feedback from people in the store. It wouldn’t come from my DM. Not because he lacked the ability, but because I saw him maybe one day every month or two. And when he was in the store it wasn’t like a normal day. From that day forward I always made sure that my assistants knew that not only did I want feedback, I needed it. Did I like what I heard? Not always. But I do remember that about three months after that incident, my assistant came up to me and said, “Chief, we need to talk. I’m amazed at how after I told you about how your ribbing the employees was impacting them that you completely stopped. Nice job Chief.” Now that was feedback I did like to hear.

The Profitable Retailer Program is a coaching and mentor program for the owners of independent retail stores who want to improve the profitability of their stores, or new store owners who would like to improve their chances for success. To learn more about this program visit our newly designed The Profitable Retailer website. You may also request your Profitable Retailer package that includes an overview of the program including program details, fees, and our popular positioning paper, The Secrets of Profitable Retailers: 10 Things Every Retailer Should Know.

 

Watching some retail sales associates the other day, it was clear that passion sells and tech talk and industry jargon costs sales.
 

Any retailer who has the staff hand out applications instead of requiring a member of management to meet every person who comes in looking for employment is missing the chance to meet someone who might be an incredibly engaging potential hire. Almost every single quality that makes a great retail employee won’t be found on a job application.
 

Note to self: Next time the children want to listen to the music I’m listening to, think it through. About an hour after listening to my music, daughter Jane asked, “Hey dad. What’s a midnight toker?”

While traveling recently I decided I would track how many times I heard the words “You’re welcome” after I said “Thank-you.” I said “thank-you” nine times and heard “you’re welcome” exactly once. I had four “no problems,” one “sure,” and sadly, four times I got a blank stare with no response. Of the nine people I thanked, eight were in a retail or service position. One was in a support position in the hospitality industry. She was a housekeeper in a hotel. Interestingly, she was also the only person who replied “You’re welcome.” I just don’t get the lack of manners in retail and service roles.

 

It was interesting watching a banquet manager defending herself to a meeting planner when the hotel was falling short of the group’s expectation. “I swear I told them to do it” the banquet manager exclaimed to the meeting planner. I wanted to pull her aside and tell her that nobody cares what you did, what they care about is getting what they asked for. Don’t defend yourself, just fix it!

 

A job applicant who doesn’t smile during the interview is probably not a person you should want to hire.

 

A friend told me a very funny story that’s worth sharing. John moved into a new house years ago and the first morning he was there he heard a bird singing in his backyard. John decided to “sing” back to it. Much to his delight, the bird answered him. For the next two years John and the bird sang to each other practically every morning. Then one evening at a neighborhood cookout, John shared with his neighbor about his singing bird friend. His next door neighbor was amazed because he also shared bird calls every morning with a bird. Yup, you got it. For two years John and his neighbor were sharing bird calls with each other.

 

I was reminded this week that we shouldn’t be concerned about how we measure up to our competition. What matters is how we measure up to our customers. So let me ask, how are you measuring up?

 

Have a PROFITABLE and FUN March!

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